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Counting on Success: Calculating Safety Stock Levels

POSTED BY: Ashley Little on 08.14.2014

counting_on_success_calculating_safety_stock_levelsWhether your business calls them min/max levels, safety stock levels, or something else, ensuring you have the right amount of equipment and other assets on hand—just enough, but not too much—is a delicate balance. Keep more than you need and you could pay excess taxes on equipment that could be retired or find unneeded items taking up valuable space in your warehouses or trucks. Keep too few key assets on hand, and you may find yourself short—and shorting customers on service.

How do you ensure you are getting the equation correct to your business’s best advantage? We have compiled a few tips from the inventory experts to help.

Use Your Math

Smart companies use standard statistical formulas that consider past usage and turnover data for assets to determine how much of each item should be kept in stock in the future. These formulas generally combine sales forecasts, production lead times, service level data and the results of marketing efforts to make the call, but we would argue that the first step in getting the numbers right is to conduct regular inventories and keep track of what equipment is warehoused, what is in use, and what needs to be purchased. Analyzing that data over time helps businesses accurately determine the right amount of assets to keep on hand.

Designate a Diverse Team

While it might seem reasonable to only ask the people in charge of replenishing asset stock, often production planners and sourcing managers, about safety stock level calculations, getting others in the company involved, can be a huge benefit as well. With the right people in the mix, knowing your company is about to execute a big marketing promotion, enter a heightened sales period or gain a lot of new customers (and will therefore need more product or more vital assets ready to take on the impending heavy load) can give you a chance to stock up and be ready.

Recalculate on a Regular Basis

The best way to make certain your information and counts of items and assets is as accurate as possible is to simply re-set the safety stock levels on a regular basis. Experts recommend updating calculations every three to six months. [1]

Get the Right Software

Using a connected scanning and inventory management solution designed to link with your business’s accounting software can streamline the information-gathering process and track of fluctuations in asset usage and needs over time. The right tools also make recurring inventory and safety stock level recalculation easier and therefore are more likely to be repeated, creating better results over time.

[1] http://www.bain.com/publications/articles/ten-ways-to-improve-your-inventory-management-wsj.aspx

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